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Personal money management consists of identifying your goals, setting priorities, making a plan and keeping a record of your expenses so you can review and evaluate your goals. Remember, a budget is not just a tool to help you live within your income. It is also a way to help you get what you want out of life.
Make a list of your short-term and long-term goals. Short-term goals will be goals you want to reach within a year or less; it might include minor home renovations, a piece of furniture or purchasing a home theater. Longer-term goals might take several years—perhaps a new car, a vacation, or a down payment on a house.
Differentiating between real needs and wants helps tremendously. Needs are the things you need to survive like food, shelter, and clothing. Wants are things you can live without, such as a new TV, DVD player, or fashion accessories. People get into financial trouble when they begin spending too much on unnecessary things. Limit your spending to the things you really need and can realistically afford.
Develop a list of priorities based on how important they are to you and how soon you'll be able to afford them. Keep a record of what you're spending. Separate the fixed expenses (like housing, taxes, loans and insurance) from the variable expenses (like food, clothing and entertainment).
Now that you've set up a budget, it's time to put it to use. During the first few months, continue to track expenses and compare them to your spending plan.
Remember, this is your plan, so spend a few minutes thinking about what you want. The following questions may help you hone your budget into a spending plan that complements your goals:
A budget that works today won't necessarily work in five years. The following life changes often mean it's time to rework your budget, so don't hesitate to modify it as needed:
At Navy Federal, we're committed to providing you with solid information so you can make wise financial decisions. For more information, visit the following resources.